Inflation & other aggregates

Principles of Macroeconomics // Fall 2024

Prof. Santetti

marcio.santetti@emerson.edu

Readings

Readings


Required readings:

Words of the day



  • Demand-pull;
  • Cost-push;
  • Phillips;
  • Class conflict.

Types of inflation

Types of inflation

Types of inflation


Main agreed upon causes of inflation:


  1. Demand-pull;

  2. Cost-push;

  3. Class conflict (aka wage-price spiral).

Types of inflation


[1] Demand-pull inflation:


“Too much money chasing too few goods.”


  • Irresponsible government?

  • Full-employment?

Types of inflation


[1] Demand-pull inflation:


Recall aggregate demand:


\[ C+I+G+(X - M) \]

Types of inflation


[1] Demand-pull inflation:



🔗 American Rescue Plan (2021)

Types of inflation


[1] Demand-pull inflation:



🔗 Inflation vs. unemployment over time

Types of inflation

[1] Demand-pull inflation:

In 1958, A. W. Phillips (1914—1975) empirically found that low rates of unemployment were associated with high rates of inflation, and high unemployment with low inflation.

Types of inflation

This relationship has since been referred to as the Phillips curve.

Types of inflation



Q: How can lower unemployment lead to a general increase in the price level (i.e., inflation)?

Source: New York Post (2023).

Types of inflation


[2] Cost-push inflation:


Increases in the cost of producing goods and services:

  • Wages;
  • Raw materials;
  • Energy;
  • etc.

Types of inflation


[2] Cost-push inflation:



🔗 The lagged effects of COVID-19 supply chain disruptions on inflation (Brookings Institute)

Types of inflation

[2] Cost-push inflation:

Source: El Pais (2023).

Types of inflation


[2] Cost-push inflation:



🔗 Europe’s energy crisis is over (Reuters)

Types of inflation

[2] Cost-push inflation:

  • Greedy corporations?

Types of inflation


[3] Conflict inflation:


  • Conflicting claims over income distribution;

  • Who’s to blame?

Types of inflation

[3] Conflict inflation:

Source: NYT (2022).

Types of inflation

[3] Conflict inflation:


Source: NYT (2024).

Types of inflation

[3] Conflict inflation:

Next time: Inflation & the Central Bank